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http://ssrn.com/abstract=1981210
 
 

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How Unjust! An Experimental Investigation of Supervisors' Evaluation Errors and Agents' Incentives


Lucia Marchegiani


University of Rome III; Libera Università degli Studi Sociali (LUISS) Guido Carli

Tommaso Reggiani


Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS); University of Bologna - Dept. of Economics

Matteo Rizzolli


Free University of Bozen-Bolzano - School of Economics; Università degli Studi di Milano-Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS)


IZA Discussion Paper No. 6254

Abstract:     
In our simple model the supervisor: i) cannot observe the agent's effort; ii) aims at inducing the agent to exert high effort; but iii) can only offer rewards based on performance. Since performance is only stochastically related to effort, evaluation errors may occur. In particular, deserving agents that have exerted high effort may not be rewarded (Type I errors) and undeserving agents that have exerted low effort may be rewarded (Type II errors). We show that, although the model predicts both errors to be equally detrimental to performance, this prediction fails with a lab experiment. In fact, failing to reward deserving agents is significantly more detrimental than rewarding undeserving agents. We discuss our result in the light of some economic and managerial theories of behavior. Our result may have interesting implications for strategic human resource management and personnel economics and may also contribute to the debate about incentives and organizational performance.

Number of Pages in PDF File: 33

Keywords: agency theory, organizational justice, compensation, type I and type II errors, real effort

JEL Classification: C91, M50, J50

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Date posted: January 8, 2012  

Suggested Citation

Marchegiani, Lucia and Reggiani, Tommaso and Rizzolli, Matteo, How Unjust! An Experimental Investigation of Supervisors' Evaluation Errors and Agents' Incentives. IZA Discussion Paper No. 6254. Available at SSRN: http://ssrn.com/abstract=1981210

Contact Information

Lucia Marchegiani (Contact Author)
University of Rome III ( email )
Via Silvio D'amico, 77
Rome, Rome 00145
Italy
Libera Università degli Studi Sociali (LUISS) Guido Carli ( email )
Viale Pola, 12
Rome, 00198
Italy
(+39)0685225326 (Phone)
(+39)0685225356 (Fax)
HOME PAGE: http://www.mba.luiss.it
Tommaso Reggiani
University of Milan, Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )
Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

University of Bologna - Dept. of Economics ( email )
Bologna
Italy
HOME PAGE: http://www.eng.dse.unibo.it/
Matteo Rizzolli
Free University of Bozen-Bolzano - School of Economics ( email )
School of Economics and Management
Via Sernesi 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy
University of Milan, Bicocca - Center for Interdisciplinary Studies in Economics, Psychology & Social Sciences (CISEPS) ( email )
Piazza dell'Ateneo Nuovo, 1
Milano, 20126
Italy

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